This research shows that the main customer is the Russian middle class irrespective of these people’s positions in their businesses.

This is especially demonstrated by research for the VAZ-2110 family.

This research of the Russian market also provides clear proof that the majority of Russian consumers tend to buy a vehicle priced under US$ 5 thousand. More than 94% of the total market constitutes vehicles priced under US$ 10 thousand. Analysts forecast that this pattern of vehicle purchasing will continue until 2015.

In 2001 the leaders in Russia were:

• Class C (includes all LADA vehicles, except for the VAZ-2121
Niva model and foreign-made vehicles), at 71% of the market;
• Class E (Volga, foreign vehicles), at 9%; and
• Class SUV (Niva, UAZ, foreign vehicles), over 11%.

1,433,234 vehicles (except for Russian-made second hand vehicles) were sold in the domestic market in 2001, up 29.8% from 2000.

Brand new vehicles made in Russia account for 66.8% of total vehicle sales. Sales of second hand foreign vehicles have grown sharply (by 87.3%) while sales of brand new foreign vehicles have not increased.

Despite the reduction in the market share of JSC AVTOVAZ (54.8% in 2000 to 48.6% in 2001), we have sold an all-time record of 774
thousand vehicles.

In addition to vehicles, in 2001 we produced 115,540 assembly kits (2000: 53,866 kits), including those to be shipped to AO Izhmash-Avto and AO Roslada.

An analysis of sales volumes by registered dealers of foreign makers by class in Russia indicates that new foreign vehicles fill a gap in the market due to the lack of Russian-produced vehicles in Class B and Class D and highly comfortable and expensive Russian vehicles in Class C, Class E and Class SUV.

The major reasons for the increased actual demand for domestic passenger vehicles in Russia include:

• Low price of domestically produced vehicles in comparison with similar western vehicles;
• Relatively low cost of technical service and repair;
• Improved quality of domestically produced vehicles;
• Growth of GDP and increase in personal incomes of Russian citizens; and
• A trend to have two and more vehicles in a family.

Prices of various models and the change in selling prices (of most popular variants) during the year, as shown below, corresponded with customer evaluation and market trends.

Model	Average prices in 2001, RR	Average prices in 2000, RR	Change, %
VAZ-2104	91 851	74 223	23,8
VAZ-2105	83 573	63 682	31,2
VAZ-2106	87 679	68 652	27,7
VAZ-2107	90 482	73 471	23,2
VAZ-2108	114 822	100 613	14,1
VAZ-2109	118 732	103 178	15,1
VAZ-21099	127 271	111 234	14,4
VAZ-2110	153 548	141 878	8,2
VAZ-2111	170 764	169 739	0,6
VAZ-2112	151 577	145 362	4,3
VAZ-2115	141 873	134 637	5,4
VAZ-2121	110 179	90 567	21,7

In the near future we plan to concentrate on the following tasks:

• General implementation of consumer credit and leasing;

• Substantial improvement of the quality of after sales service;

• Improvement in market research techniques and implementation of quantitative indicators such as a consumer satisfaction index and loyalty index that are widely used in foreign countries;

• Wide use of e-commerce instruments both as modern tools of sales and as an effective feedback from the market; and

• Implementation of corporate image in our own and independent segments of the distribution network.

Export sales

The actual level of export shipments in 2001 of 84,866 units slightly surpassed the planned level of 83,869 units.

We continued to export automotive assembly kits and have increased their variety.

The assembly plant in Ecuador produced 2,591 units of the VAZ-21214 model. Another assembly operation based in Lutsk, Ukraine, produced a total of 8,037 units of the VAZ-21043, VAZ-2107, VAZ-2109 and VAZ-21213 models.

Geographic coverage expanded in the past year. We exported vehicles to 33 foreign countries and seven CIS counties. AVTOVAZ commenced direct deliveries to Jordan, Romania, Belarus, Tajikistan and Ecuador.

JSC AVTOVAZ plans to develop its foreign sales and distribution network as follows:

• Strengthen its position in existing markets of the European Union and Eastern Europe. To succeed in this sector AVTOVAZ is upgrading its production facilities to ensure that vehicles meet emission and safety directives;

• Reinforce and develop the dealer network in the CIS and Middle East;

• Develop a technical maintenance and distribution network in Latin America by establishing assembly operations in Uruguay and Ecuador, and expand distribution of products;

• Regain formerly abandoned markets including countries with left hand drive; and

• Enter new markets in Asia and Africa.

These initiatives are intended to support and increase export sales in 2002.

Customer services

AVTOVAZ continues to consolidate the structure of its network in both the domestic and export markets. In order to further develop warranty and post-warranty services and to make them more accessible and of a higher quality, in 2001 AVTOVAZ made contracts on provision of warranty services for LADA vehicles with 114 technical service centres and stations that cover all geographic regions of Russia. Overall there are 621 centres that consist of 3,863 stations in the dealer network of JSC AVTOVAZ that perform technical service and repair.

Establishment of a distribution network implies that the automaker would delegate to a distributor part of its responsibilities related to expanding after-sales services within the specified territory. As part of expanding its services network in 2001, our distributors acted on our behalf to engage dealers to provide technical and warranty services.

Companies involved in presale preparation and trading were included into the ‘Dealer’ information system in 2001, which will enable better monitoring of flows of goods and tracking of each vehicle after sale.
In early 2001 we launched an electronic version of the spare parts catalogue of LADA vehicles; this is updated on a regular basis.

AVTOVAZ currently works on the development of organisational requirements, specifications and standards for technical service and distribution companies. We also developed optimal reconstruction projects and technological upgrading of technical service stations of all types of ownership.

During 2001 JSC AVTOVAZ invested in upgrading this network. In accordance with the List of equipment, tooling and instruments AVTOVAZ supplied equipment and tooling in the amount of RR 4.3 million for technical service centres in 2001. This allowed us to start preparing for certification of quality systems for compliance with ISO 9000.

Our well-established and well-organised sales and distribution network is one of the key competitive strengths of JSC AVTOVAZ. We intend to continue to improve this network in order to maintain our market share in Russia in the years to come.